The majority of GCC countries have taken vital steps to increase non-oil revenues, reduce subsidies and government expenditure.
BUSINESS REPORTER -
Muscat, APRIL 5 -
GDP growth in GCC economies looks set to ease to just 1.1 per cent in 2017, the weakest since the global financial crisis, according to ICAEW. In a new report, released yesterday, the accountancy and finance body says the global oil market should balance in the months ahead, thanks to OPEC production cuts. However, global production is also expected to rise as shale production steps up in response to price stability — limiting price rises.
The report ‘Economic Insight: Middle East Q1 2017’, produced by Oxford Economics, ICAEW’s partner and economic forecaster, says global production is likely to rise in 2017-2018. This will limit the rise in oil prices from an average of $43 in 2016, to $52 in both 2017 and 2018, before a more vigorous acceleration from 2019 onwards.
Global developments also remain of crucial importance for the region. The early months of Donald Trump’s US Presidency have raised questions over the US’ commitment to military spending overseas. Lower US military spending in the region would directly lower demand, or could ‘crowd-out’ pro-growth expenditure if national governments need to increase their own spend to ensure security is not jeopardised.
While President Donald Trump’s plans for infrastructure spending have boosted commodity prices, including oil, his aspiration for increased US oil supply is likely to mean lower prices in the long-term.
Tom Rogers, ICAEW Economic Advisor and Associate Director of Oxford Economics said: “The outlook for Middle Eastern economies remains challenging in 2017, due to continued uncertainty in the global oil market, ongoing austerity, and the need to diversify government revenues and economic growth. Increasing non-oil revenues is vital to maintain financial steadiness.”
According to the report, the rally in the dollar has forced an appreciation of currencies pegged to it, including in the GCC. Given the importance of imports in consumer spending, this will boost household budgets, and ease business costs for a similar reason. It will also raise the price of exports from GCC economies, making diversification and import substitution harder.
Michael Armstrong (pictured), FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA), said: “The majority of GCC countries have taken vital steps to increase non-oil revenues, reduce subsidies and government expenditure. One more year of austerity will help lower deficits to less alarming levels in some GCC economies.”
On a positive note, the report expects fiscal policy to ease in 2018 and alongside a rising oil price, GDP growth could boost above 3 per cent in 2018-2019.
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